Dollar Set for Biggest Monthly Loss Since 2008 Versus Euro on U.S. Economy

By Yoshiaki Nohara and Ron Harui -
Sep 30, 2010

The dollar headed for its biggest
monthly loss since 2008 versus the euro as signs the U.S.
economy is slowing damped demand for the nation’s assets.

The dollar was set for a quarterly drop versus all of its
major counterparts before data forecast to show U.S. business
activity and manufacturing slowed. Federal Reserve Chairman Ben S. Bernanke is scheduled to testify in Washington today amid
speculation the central bank is preparing to buy more U.S. debt.
The yen approached the strongest since the Bank of Japan
intervened amid speculation exporters are bringing home overseas
earnings before the end of the fiscal first half.

“America’s economic growth seems to be decelerating,”
said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan
Securities Co. “This is a negative factor for the dollar.”

The dollar was at $1.3602 per euro at 1:28 p.m. in Tokyo
from $1.3627 in New York yesterday, when it touched $1.3647, the
weakest level since April 15. The greenback has fallen 6.7
percent this month versus the euro, the most since December 2008.

The yen traded at 83.51 per dollar from 83.70, after
reaching 83.49, the strongest since Sept. 15. Japan’s currency
rose to 113.62 per euro from 114.06, after dropping to as low as
114.23, its weakest since July 29.

U.S. Data

The Institute for Supply Management-Chicago Inc. will say
today its business barometer fell to 55.5 this month from 56.7
in August, according to the median estimate of economists in a
Bloomberg News survey. Figures greater than 50 signal expansion.
The ISM manufacturing gauge dropped to 54.5 this month from 56.3
in August, according to another survey before the data tomorrow.

The Fed announced following its Sept. 21 meeting that it’s
prepared to do more to help the economy, spurring speculation
policy makers will add securities to the central bank’s holdings
under a policy known as quantitative easing.

President Barack Obama and lawmakers from both political
parties say the U.S. economic recovery is being hampered by a
Chinese currency that is too weak. The House of Representatives
voted 348-79 yesterday for a measure that would let domestic
companies petition for duties on imports from China to
compensate for the effect of a weak yuan. Democrats were joined
by 99 of the 178 Republicans on the vote.

“It’s obvious the U.S. needs a weaker dollar to achieve
its goals” such as boosting exports, said Toshiya Yamauchi, a
senior foreign-exchange analyst at the online currency-trading
company Ueda Harlow Ltd. in Tokyo. “The U.S. will continue to
mount pressure on China because it can’t afford to wait any
longer.”

Japanese Exporters

The yen rose for the first time in three days against the
euro on speculation Japanese exporters took advantage of the
currency’s decline to two-month low.

The Japanese currency’s level against the dollar is
stronger than the 89.44 average estimated by large manufacturers
for the six months to March 2011 in the Bank of Japan’s Tankan
survey released yesterday. Exporters typically buy yen to
convert overseas earnings into their own currency when they
close account books in September and March.

“We are seeing exporters buy the yen at the end of this
month and quarter,” said Masato Mori, a senior manager in Tokyo
at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone
Corp.

The yen has strengthened 17 percent against the euro and 11
percent versus the dollar this year, the best performance among
16 major counterparts against both currencies.

The Ministry of Finance in Tokyo will report today the
amount of yen the central bank sold from Aug. 28 through Sept.
28 to curb appreciation in the currency. Demand for the yen has
been tempered amid speculation Japan will sell its currency
again after doing so on Sept. 15 for the first time since 2004.

Taiwan’s dollar rose, heading for its best monthly advance
since March 2009, as the faster yuan appreciation brightened the
outlook for exports and an improving economy spurred overseas
demand for the island’s assets.

The island’s dollar was set for its biggest two-day gain in
three months as economists forecast the central bank will raise
rates for the second time this year at a policy meeting today.
The currency yesterday touched a two-year high, buoyed by
foreigners’ net share purchases of $284 million, before paring
its gain on suspected intervention by the central bank.

“The strong gain of the Taiwan dollar was driven by
investors’ confidence that the central bank will raise rates
today,” said Eric Hsing, a debt trader at First Securities Inc.
in Taipei. “The inflows were so massive that the central bank
couldn’t completely erase the gain yesterday.”

The Taiwan dollar rose 0.4 percent to NT$31.251 against its
U.S. counterpart, according to Taipei Forex Inc. It reached
NT$31.211 yesterday, the strongest level since August 2008, and
has gained 2.5 percent this month. China has allowed the yuan to
appreciate 1.7 percent since the end of August.